Parents always want what’s best for their children—good living conditions, quality education, and top-notch healthcare. But raising a child can get expensive, and this is where planning ahead can really help. By creating a financial plan early on, parents can secure their child’s future and worry less about money later. In this article, I will explain what a child plan is, why it’s important, and share some of the best child investment plans in India.
What Is a Child Plan?
A child plan is a financial strategy that helps secure a child’s future. Parents or guardians start investing money now so that it can grow over time and be used later for things like education, marriage, or healthcare. These plans make sure that you have money set aside for your child’s needs when the time comes.
Child investment plans usually fall into two main types:
Insurance-plus-Investment Plans: Here, you invest money regularly as a premium, and the plan provides both insurance coverage and investment growth.
Pure Investment Plans: Here, you invest through methods like SIPs (Systematic Investment Plans). These do not include insurance, but they focus on growing your money over time.
Both types need regular investments, which help build a solid amount of money for your child’s future.
Why Are Child Investment Plans Important?
Investing in your child’s future is like building a safety net. When you start saving and investing small amounts early on, you lessen the load on your shoulders later. If hard times come—like job loss or even the death of a parent—these investments can help support your child financially.
Having a separate fund for your child’s future also means you won’t have to take money from other savings that you’ve set aside for your own goals. In other words, you can stay focused on your life goals without sacrificing your child’s needs.
Some child investment plans also offer tax benefits at the time of investing, which can help you save on taxes. Keep in mind, though, that the returns may be taxed later, depending on the tax rules.
Best Child Investment Options
Every parent wants to give their child the very best. To do this, it’s important to start planning and investing early. With the right planning and smart investing, you can offer your child the future they deserve. There are many kinds of child plans in the market, and in the following sections, I’ll share some of the best options available.
Systematic Investment Plans (SIP)
Systematic Investment Plans let you invest small amounts at regular times into mutual funds. When you set up an SIP, money is taken directly from your bank account on a chosen date each month. This makes investing simple and helps you build a fund over time. Since planning for a child’s future is a long-term goal, you can consider mutual funds for education or marriage expenses. By linking your investments to a goal, you can figure out how much money you will need later, and then invest to reach that amount.
Mutual funds have a history of giving good returns over the long run. By investing through SIPs, you invest at different market levels, which can help even out the ups and downs in prices. Also, mutual fund returns often beat inflation, helping your money grow stronger. Plus, there’s no lock-in, so you can take out some money if you need it.
You can also use an SIP calculator to understand how much you might earn from these investments.
Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana is a savings plan started by the government to support a girl child’s future. It gives a guaranteed return, with the current interest rate at 7.6%. You can open an SSY account at a post office or certain public and private banks. Each family can open up to two SSY accounts, or three in the case of twins.
You can open this account any time before your daughter turns 10 years old. The account stays locked until she turns 21. You must deposit at least INR 250 each year and can go up to INR 1,50,000. The money saved up can be used for her higher education or marriage. Also, the amount you invest in SSY each year can be claimed as a tax deduction under Section 80C, up to INR 1,50,000.
When your daughter turns 18, you can withdraw up to 50% of the money for her higher education. If there is a serious illness or unfortunate event, you may be allowed to withdraw early.
To understand how your money may grow, you can use the SSY calculator.
Why Is Investing in a Child Plan Important?
Secure Your Child’s Future:By investing in a child plan, you set aside money that your child will get later. Even if something unexpected happens, this money can help with education, marriage, or daily expenses.
Create a Corpus:Investing small amounts from a young age builds up a large fund over time. When your child is older and needs the money for big goals like college or a wedding, the money will be ready. This means parents won’t have to take loans or sell other investments.
Regular Savings Habit:Putting aside a small amount every month teaches parents good saving habits. It also makes it easier to handle future expenses without feeling too much pressure. By planning ahead, parents can also keep their other financial goals on track.
Things to Keep in Mind Before Investing
Investment Goal:First, decide why you are investing. Is it for your child’s education, marriage, or just to give them a good start in life? Having a clear goal helps you understand how much to save and invest.
Tenure (Time Period):How long you invest matters. For investments linked to the stock market, staying invested for a long time often leads to better returns. Child plans usually need long-term investing to reach big goals.
Returns:To get good returns, you often need to stay invested for many years. Some plans, like SSY, offer fixed returns. Others, like mutual funds, depend on the market. Over time, mutual funds can give strong returns and help beat inflation. Always look at the past performance of a fund before investing.
Expenses:Some investments, like ULIPs (Unit Linked Insurance Plans), have many charges—like policy fees and fund management costs. These can reduce your overall returns. Mutual funds also have expenses, called the expense ratio. Choose funds with lower costs so you keep more of your earnings.
Risk:All investments carry some risk. Mutual funds and ULIPs invest in the stock market, which can go up and down. But if you invest for the long term, these ups and downs tend to even out. Choose a time frame that gives your investment enough room to grow.
Taxation:Different child plans have different tax rules. For example, SSY investments and returns are tax-free up to certain limits. ULIPs also offer tax benefits. Mutual fund gains are taxed differently depending on how long you hold them and whether they are equity or debt funds. Using an Income Tax calculator can help you understand your tax situation and guide you to smart investment choices.
What Documents Do You Need for a Child Plan?
When you invest in a child plan, you usually need to show a few key documents. These prove that you are who you say you are, and that you can pay for the plan. Here’s what you’ll need:
Proof of Age (for your child):You can use your child’s birth certificate or passport.
Proof of Address (for the parent):Common address proofs include Aadhaar card, passport, or an electricity bill.
Proof of Identity (for the parent):An Aadhaar card often works well as an ID proof.
Proof of Income (for the parent):You may need to show salary slips or other documents. This helps the company see that you can pay the premiums.
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